How to Construct a Winning Loyalty Program

Companies that have developed loyalty programs that succeed in driving revenue growth share some common characteristics:

First, be unique.

A loyalty program that relies on points and plastic cards can get lost in the shuffle. Your loyalty program, just like any marketing or advertising should be relevant and engaging. A brewery that does engraved mugs instead of loyalty cards is a great example of how your program can be relevant to your company’s offering. And the program should engage your customers in a way that not only pushes promotions, but opens up the dialog and shopping experience to engage in a deeper, more meaningful interaction. Focusing on the “Why” of your company is a great way to instill deeper value and loyalty.Loyalty programs, are not loyalty creators.They just allow you to measure the activity. Your messaging and efforts behind the program are what create loyal customers.

Integrate loyalty into the full experience: Starbucks, the brand that created loyalty by differentiating the ordinary experience of drinking coffee, has also managed to create a strongly differentiated loyalty program. To do this, the company integrated payments and mobile technology with the Starbucks shop experience to make the transaction more enjoyable.

Make it measurable: If you do anything with a loyalty program, you should have the ability to collect lifecycle metrics on each of your customers. At the end of the day, if you can not calcualte LTV, or sales inside your loyalty program, you are wasting time. Every interaction and sales that customer makes should be tied into your program. Loyalty program are one of the greatest cohorts a company might ever have of measuring customer return. There are a number of tools that give you reporting, but at the high-level, you need to be able to pull demonstrate the active return in referrals, LTV, NPS, and return ratio on reach measures.

Use the data: The Target REDcard combines loyalty and a valuable discount program – 5 percent at the point of sale. They have moved past the flat “discount-only” model by building out industry- leading data capabilities, using the data to target highest-value consumers (e.g., future moms).

Build partnerships: Despite Tesco’s massive success at using data to drive loyalty, Sainsbury slightly outpaced the giant’s sales growth in the UK for the last three to four years; in part this could be due to a new form of loyalty program. Sainsbury is the anchor retailer of the Nectar coalition, which allows consumers to collect rewards across a large number of non-competing retailers in the UK. Through Nectar, Sainsbury offers a broader value proposition to its customers, and captures external data from coalition partners.

Solve customer and industry pain points: Amazon’s largest success in loyalty is built around solving one of online shoppers’ primary pain points: delivery. For $79 a year, members of the online retailer’s “Prime” program get free two-day shipping, plus free digital content. Prime not only integrates tightly with Amazon’s customer and convenience-focused brand, it also creates a loyalty program for suppliers, who rely on Fulfillment By Amazon for access to Prime customers. While Prime’s stand-alone profitability is a closely guarded secret, it is estimated that members spend over four times more with Amazon than non-members.

Maximize difference between perceived value and real cost: Like most hotel loyalty programs, the major focus of the Starwood Preferred Guest (SPG) program is to attract high-value travelers by offering rewards t for personal leisure travel. Redemptions generally occur on weekends, when these hotels have relatively low occupancy and incur limited incremental cost. Starwood has also developed a series of offerings (e.g., upgrades, flexible check-in, Internet) that are highly valuable to their top customers, but bear little marginal cost. Overall, Starwood’s loyalty program has improved its brand appeal and helped the chain achieve above market growth, despite relatively low overall guest satisfaction scores.

Do more than discounts Loyal customers are created on more than price. In fact, loyal customers are the ones who are most likely to not care about price in selecting a service. So why make the carrot on the end of your loyalty stick a discount? You can explore some feedback here, but in most cases the intention is to build value, and you can do that by giving more, not taking away. Find ways to increase what you give to customers, not just take away from your profits. Think outside your box. Even if you sell tires, it does not mean that a gift card to a restaurant would be a irrelevant reward. In the pursuit of being memorable and unique, your rewards can be a big help.

Creating a loyalty program for any industry starts with the intention of making more with every interaction and understanding your customer in more meaningful ways. With a successful loyalty program, its a win-win for both the customer and the company.

Allocate loyalty reinvestment to the most profitable customers: Southwest Airlines’ loyalty program has been a hallmark of its brand, and the 2010 revamping of the program appears to have maintained its customer appeal, while better correlating its spend to profitability. While most airlines attach rewards to miles flown, Southwest offers rewards based on ticket price. Their loyalty rewards spend remains similar to that of other loyalty-focused airlines (i.e., 8 to 9 percent of revenue passenger miles), but the program is better positioned to drive profitability.

Loyalty programs are not only growing, but they are also becoming more tightly integrated with the supporting brand and shopping experience, offering consumers a seamless experience across point of sale, the Internet, phone and mobile channels. Consumer-facing businesses must think beyond the concept of a me-too, points-based loyalty program. To reap the full benefits of customer loyalty, they must create a differentiated experience, consistent with their brand, to provide a step change in brand preference.

How to structure rewards?

Buy nine, get one free. This is the method used by a number of coffee shops, which give visitors their 10th drink free. You can use this as a model and tailor the specifics to your business.

Discounts. Particularly if you run a service-based business, it may make sense to offer a discount on future orders to customers who spend above a certain amount. For example, award a 10 percent-off coupon for every $100 customers spend in a single order.

Clubs.Most supermarkets offer a club-style rewards program, which tracks their purchases and permits certain advertised deals only to those who are a member. This method may work well for businesses that are keen on targeted advertising.

Rewards for paying upfront. Small business owners can offer their regular customers an incentive to pay ahead. This can also help with cash flow management.

Contests. You could hold regular contests to write reviews for products, come up with ideas for the regular email newsletter – or simply hold a raffle for all customers who spend more than a set amount in a given month.